# Fin515 second course project graded – 43/50 – 2016

Fin515 second course project graded – 43/50 – 2016.

Second Project

The purpose of this project is for you to have some practice working with financial concepts in the real world. This will involve integrating some material from throughout the course. The project will also involve the development of your own approach to doing the work. The project does not provide a step-by-step procedure for you to follow.

Your task is to determine the WACC for a given firm using what you know about WACC as well as data you can find through research. Your deliverable is to be a brief report in which you state your determination of WACC, describe and justify how you determined the number, and provide relevant information as to the sources of your data.

Assumptions

As you recall, the formula for WACC is

rWACC = (E/E+D) rE + D/(E+D) rD(1-TC)

The formula for the required return on a given equity investment is

ri= rf + βi * (RMkt-rf)

RMkt-rfis the Market Risk Premium. For this project, you may assume that the Market Risk Premium is 4%, unless you can develop a better number.

rfis the risk-free rate. The YTM on 10-year U.S. Treasury securities is a good approximation.

You may assume a corporate tax rate of 40%.

One good source for financial data for companies as well as data about their equity is http://finance.yahoo.com. By looking around this site, you should be able to find the market capitalization (E) as well as the β for any publicly traded company.

There are not many places left where data about corporate bonds is still available. One of them is http://finra-markets.morningstar.com/BondCenter. To find data for a particular company’s bonds, find the Quick Search feature. Then, be sure to specify corporate bonds and type in the name of the issuing company. This should give you a list of all of the company’s outstanding bond issues. Clicking on the symbol for a given bond issue will lead you to the current amount outstanding and the yield to maturity. You are interested in both. The total of all bonds outstanding is D in the above formula.

If you like, you can use the YTM on a bond issue that is not callable as the pre-tax cost of debt for the company.

Deliverable

Write a two or three page report that contains the following elements:

1.       Your calculated WACC

2.       How data were used to calculate WACC. This would be the formula and the formula with your values substituted.

3.       Sources for your data.

4.       A discussion of how much confidence you have in your answer. What were the limiting assumptions that you made, if any?

 Rubric – Second Project Possible Points Criteria and Point Range Data 15 0–3 4–7 8–11 12–15 Little or no data provided. Source of data not clear. Unclear relationship between data and variables. Data mostly corresponds to variables. Relationships between data and variables clear and correct. Calculations 15 0–3 4–7 8–11 12–15 Calculations not provided or are generally incorrect. Not all calculations provided or some calculations are incorrect. Calculations are nearly but not totally provided or correct. Calculations are provided and are correct. Evaluation 10 0–2 3–4 5–7 8–10 Evaluation of answer or limitations and assumptions not discussed. Either evaluation of answer or discussion of limitations and assumptions missing or minimal. Evaluation of answer and discussion of limitations and assumptions provided. Missing some limitations or assumptions. Complete and thorough discussion of confidence in answer based on limitations and discussions. Form 10 0–2 3–4 5–7 8–10 Significant problems with writing or format. Minor problems with writing or format. Writing and format generally correct with a few exceptions. Virtually no errors in writing or format. 50

Fin515 second course project graded – 43/50 – 2016

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